Assignment about Comparative Corporate Governance and International.

Comparative Corporate Governance and International

Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Profile of Organisation...........................................................................................................4
Circumstances and Contributing Factors................................................................................4
Key People Involved In Case Crisis.......................................................................................5
Organisation Response to Crisis.............................................................................................7
Broader Governance Lesson...................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

EXECUTIVE SUMMARY
Company profile and background will be discussed by including emission scandal and how it
hampers the society and industry in a negative way. Then will move towards various factors due
to which scandal happens and key faces behind it. Different circumstances which leads to
scandal and how it could be ignored is examine. Corporate governance theories and how it
breaks down company’s profitability is scrutinised. At last, company’s future plan and how they
could manage in the future to avoid it is explained.

INTRODUCTION
Corporate governance is a set of rules and regulations set by company to ensure
transparency, fairness etc in their business operations1. It involves interest of various
stakeholders like shareholders, suppliers, customers, employees, local government etc2. In this
report, Volkswagen Emission Scandal is taken for consideration and how it affected overall
company’s performance in the market. Background of Volkswagen and different factors leads to
scandal will be scrutinised. Besides this, key people which are directly involved in this scandal
will be determine with their roles in it. At last, organisation role and actions towards the scandal
and what order should learn from it will be explained with functional example of company.
MAIN BODY
Profile of Organisation
Volkswagen is a German based automobile company which was founded in 1937 by
German Labour front. It is one of the largest automobile in the world with the total sales revenue
of 213.29 Billion Euros (Volkswagen AG's sales revenue. 2019). Company has been working in
more than 153 countries in the world and most of the profit comes out of the Asian countries like
China and India. In 2015, Volkswagen was managed by MR. Martin Winterkorn who helds
Chief Executive Officer Post at that time.
Circumstances and Contributing Factors
Volkswagen Dieselgate or emission scandal started in late 2015 when United States
Authority of pollution and EPA found violation of emission test and issued a notice to company.
Monitoring authority with the help of individual researcher found out that company has installed
defeat device in their engine software which automatically started at the time of laboratory test
and turns off when the vehicle is running on the actual road. Volkswagen disease engine was
emitting 40 times more nitrogen in the environment and to avoid any type of legal issues from
regulatory department they have deployed the software Volkswagen: (The scandal explained,
2019). Defeat device is a non-physical device which is implanted as software in Volkswagen
Engines which works on the basis of sensor planted on it.
In 2017, US government has imposed a penalty of 4.3 billion dollars on Volkswagen
group and more than 5 executives were arrested who was directly associated with the scandal.
Volkswagen also needs to invest 2 billion dollars in next 10 years on green power, electric

vehicles etc as a penalty. In total, company has faced 14.7 billion dollar penalty which
completely tarnish and hamper company’s image and profitability in the market (VW Diesel-
Emissions Scandal, 2019).
Management and executives role in company is to manage and monitor the business
operations and try to solve the problem which their company could face in the future. But in this,
they are the one who causes this problem and become an ideal example of leadership failure.
Power: It is essential for every company to disseminate authority and power to more
people as it assists them to avoid and wrong doing in a company 3. But on the other hand, Piech
and Porsche family owns 35% shares in one of the largest company in the world and besides this;
they also have 50.7% of voting rights which makes it more authoritative in nature (What caused
Volkswagen's emissions scandal, 2019).
Autocratic leadership: This type of leader prefers to have full control over every decision
taken within a company. Their decision ability is totally based on their experience and
judgements. When Martin Winterkorn becomes a CEO, he has a vision of becoming largest car
maker in the world by selling 10 million car in a year. To attain the target, Mr. Martin and his
team has decided to enter in to USA market while ignoring other factors like quality of vehicle,
emission test etc. To attain his goals, leaders of Volkswagen has order to stored defeat device in
their cars resulting in Scandal.
Pressure: It is known in the industry that Volkswagen is managed by autocratic leaders
due to which more pressure is faced by employees as they could be fire any time by their
manager. So to reduce emission from the diesel engine, employees were forced to put cat urine in
it so that nitrogen emission would reduce to a certain level (3 FACTORS THAT DRIVE
ETHICAL BREAKDOWN, 2019).
So overall it can be said that due to failure of management and lethal leadership style,
Volkswagen employees, shareholders and their employees has to face backlash and criticism.
Key People Involved In Case Crisis
It can be said that no illegal work can be carry in a company without permission of the
executives working in the same company. There are total of five executives and employees
who have found guilty in emission scandal. Their culpability and role in the scandal is
mentioned below,

Heinz-Jakob Neusser: He holds a prominent position in Volkswagen and played an
essential role in the scandal. He was one of the people who presented various Volkswagen new
car models in the shows and manages more than 10,000 employees worldwide. To pass diesel
emission test, he ordered their employees to fix software in the engine so that no one can detect it
resulting in better result in test. After the result broke down, he ordered their employees to
destroy the evidence so that less negative impact would be created.
Jens Hadler: Volkswagen executives and board member was aware that if they want to
sustain and capture American market share then they have to pass the strict test set by the local
authorities of America. To make this happen, Volkswagen hired Jens Hadler who has a
doctorate in engineering and knew that Volkswagen does not have technology which could
compete in the competitive market. To make this happen, it was his direction to implant software
in the engine so that engines would become cleaner and pollution free then they were in real
(emissions scandal explained, 2019). He left the organisation in 2011 before news broke out in
the public.
Richard Dorenkamp: He is known as one of the best mind in Engine making industry
which somehow tarnishes his image after this scandal. He was working as an emission specialist
in Volkswagen and given the responsibility of making engine which would compete in the US
market. But due to less advanced technology then other companies, Richard suggested to fix
illegal software in Engine which makes him serious offender of the scandal.
Bernd Gottweis: He held a position of quality control executive in Volkswagen where his
work was to check the quality of engines and cars according to pre-set guidelines. He was known
as trouble shooter in the automobile industry. He was aware about the research conducted by
West Virginia University student and wrote a memo to the executive members saying that now
they could not do anything to make millions of car legal.
Oliver Schmidt: Oliver is the point of contact for American clean air regulations
department and has worked from 2012 till 2015. He was accused of providing false and
misinterpreted data to the authorities and stakeholders. After the incident, he underestimated the
trouble and flew from Germany to Florida to avoid any type of legal activities. But still, FBI has
arrested him from Miami International Airport without giving option of bail (Who Has Been
Charged, 2019).

Organisation Response to Crisis
In the starting, Volkswagen has put all the blame on the engineers who was managing the
overall production of the cars. But as the time passes, Volkswagen management has admitted
their mistakes and their role in the scandal. According to Hans putsch, there are numerous
number of errors in the starting which is tolerated by management resulting in mind-set which
could tolerate rule breaking errors if company is getting benefit from it. Approximately 10
managers were fired who installed defeat device in engine to pass US emission test.
After Muller taking the post of Martin Winterkorn said that, he will try to make
Volkswagen culture more open, less hierarchical and no chances of errors or rule breaking so
that no such thing will repeat in the future. According to sources, it becomes almost impossible
to secure market leader position for Volkswagen as their prices of shares and sales of vehicle
have reduced dramatically (VW admits emissions scandal, 2019).
Broader Governance Lesson
Corporate governance refers to system or set of rules which company must follow to run their
business operations4. It assists company and their employees for fair and transparent work by
avoiding any activities which contrast their rules or unethical activities must be non-tolerable.
Few lessons which must be learn by other companies from Emission scandal is explained below,
Leadership style: As from the above mentioned information, it can be said that autocratic
leadership is lethal for big companies as every factors must be considered before taking any
1 Aguilera, Ruth V., William Q. Judge, and Siri A. Terjesen. "Corporate governance deviance."
(Academy of Management Review 43, no. 1 2018), 87-109.
2 Knudsen, Jette Steen, Jeremy Moon, and Rieneke Slager. "Government policies for corporate
social responsibility in Europe: A comparative analysis of institutionalisation." (Policy &
Politics 43, no. 1 2015), 81-99.
3 Dimopoulos, Theodosios, and Hannes F. Wagner. "Corporate Governance and CEO Turnover
Decisions." (Swiss Finance Institute Research Paper 2016), 12-16.
4 Du Plessis, Jean Jacques, Anil Hargovan, and Jason Harris. Principles of contemporary
corporate governance. (Cambridge University Press, 2018).

decision which could affects millions of people. To stay away from unethical practices, company
must follow democratic leadership styles in which every aspects of decision is considered by
more than one person and the most benefited alternative is chosen in the last 5.
Top management compensation: Management role in the business is to direct their
subordinates to take a path which is fruitful for longer period of time. By doing this, they must
get a compensation which is according to their capabilities, skills and experience. But on the
other hand, executives are taking huge amount of money in their pocket which indirectly reduces
profit of shareholders and their employees6.
Long and short run profit: Due to globalisation, companies who are providing same service to
same customer share are increasing on a regular basis. This factor impact fair competition as
every company tries to become the market leader by doing hook or crook. To attain higher
revenue and sales, Volkswagen management conducts wrongful activities without even seeing
the long run result of it. So every company must try to look every aspect of the decision before
implementing on their business operations.
To maintain corporate governance in the culture, there are three principles which must be follow
is given below,
Transparency: It refers to honesty and cleanliness in the business operations conducted by
company. To maintain it, companies must try to disclose each and every information to their
stakeholders on a regular basis 7.
Accountability: It means explanation behind every decision taken by company. In fair corporate
governance, management, executive, board of members must be responsible for every good or
bad decision taken by them.
5 Haxhi, Ilir, and Ruth V. Aguilera. "Corporate governance through codes." (Wiley encyclopedia
of management 2015), 1-3.
6 McCahery, Joseph A., Zacharias Sautner, and Laura T. Starks. "Behind the scenes: The
corporate governance preferences of institutional investors." (The Journal of Finance 71, no. 6
2016), 2905-2932.
7 Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and
practices. (Oxford University Press, USA, 2015)

Independence: Good governance is directly associated with the level of independence in top
management decision making. Every decision taken by every board member must be on the basis
of their knowledge and experience instead of forcing by other individual. Without it, company
cannot sustain in the market for long run as individual profitability is considered at that time
instead of company and shareholders profit 8.
.
8 Yermack, David. "Corporate governance and blockchains." (Review of Finance 21, no. 1
2017), 7-31.

CONCLUSION
From the above mentioned information, it can be concluded that company must adhere to all
rules and regulations set by local government and company as it assist them t9o avoid any types
of legal actions which could be imposed on them if not followed. By following good corporate
governance, company can enhance their corporate social responsibility in the society which will
somehow shape the brand image of company in a positive way. To capture the market share,
management and board members must try to take an ethical way of doing business operations as
way of working is directly associated with brand image in the mind of customers.
9

Bibliography
Books and Journals
Aguilera, Ruth V., William Q. Judge, and Siri A. Terjesen. "Corporate governance deviance."
Academy of Management Review 43, no. 1 (2018):
Dimopoulos, Theodosios, and Hannes F. Wagner. "Corporate Governance and CEO Turnover
Decisions." Swiss Finance Institute Research Paper 12-16 (2016).
Du Plessis, Jean Jacques, Anil Hargovan, and Jason Harris. Principles of contemporary
corporate governance. Cambridge University Press, 2018.
Haxhi, Ilir, and Ruth V. Aguilera. "Corporate governance through codes." Wiley encyclopedia of
management (2015):
Knudsen, Jette Steen, Jeremy Moon, and Rieneke Slager. "Government policies for corporate
social responsibility in Europe: A comparative analysis of institutionalisation." Policy & Politics
43, no. 1 (2015):
McCahery, Joseph A., Zacharias Sautner, and Laura T. Starks. "Behind the scenes: The
corporate governance preferences of institutional investors." The Journal of Finance 71, no. 6
(2016):
Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA, 2015.
Yermack, David. "Corporate governance and blockchains." Review of Finance 21, no. 1 (2017):
Online
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